Citigroup doesn't deny Prince exit as shares tumble

BLOOMBERG

The crisis of leadership at Citigroup Inc was rumored to be close to a climax over the weekend amid widespread speculation that CEO Charles Prince will resign, undermined by widening losses from bad mortgage debts and disgruntled shareholders who have suffered a 31 percent loss in the market capitalization of the largest US bank.

Just a week after New York-based Merrill Lynch & Co ousted Stan O'Neal, Citigroup provided no comment on front-page stories throughout the US that said Prince, 57, will step down.

"This might become a weekly occurrence, getting rid of a Wall Street CEO," said James Ellman, who manages about US$200 million as president of Seacliff Capital in San Francisco.

Citigroup's board was to hold an emergency meeting this weekend, the Wall Street Journal reported, citing unidentified people familiar with the situation.

"We are completely declining to comment," said Leah Johnson, a Citigroup spokeswoman and member of the New York-based firm's management committee.

The biggest US bank by assets reported US$6.5 billion in writedowns and losses in the third quarter, casting doubt on the length of Prince's tenure.

"The board may have simply reached the point where they can't take the pressure from stockholders and they have to remove him," Punk Ziegel & Co analyst Richard Bove said in an interview.

The US Securities and Exchange Commission (SEC) is looking into how Citigroup accounted for certain transactions in a banking-industry rescue plan, the Journal reported, citing people familiar with the matter. Specifically, it's reviewing whether the company properly accounted for US$80 billion in structured investment vehicles, the newspaper said, citing one of those people.

The result of the review, still in early stages, could include no action or a referral to the SEC's enforcement division, the Journal said.

Citigroup rose US$1.31, or 3.5 percent, to US$39.04 in extended trading on Friday. Shares have dropped 32 percent this year.

Robert Rubin, the former US Treasury secretary and chairman of Citigroup's executive committee, may be asked to serve temporarily as CEO, Dow Jones reported.

Rubin is "reluctant" to take the job, the news service said.

Other possible replacement candidates, according to the Journal, include Richard Parsons, a Citigroup board member who is expected to step down as CEO of Time Warner Inc later this year, and NYSE Euronext CEO John Thain.

The best way for the company to return value to shareholders is to break into three separate companies, a consumer bank, an investment bank and a wealth-management brokerage, William Smith, president of Smith Asset Management, said in an interview.

"They've got to put a close to this chapter, they've got to put some morale back into the company," he said.

Smith said Citigroup chief financial officer Gary Crittenden is capable of overseeing the dismantling and that Sallie Krawcheck, head of the global wealth management division, could run that company afterward.

Banks, securities firms and insurers have declined on concern that more writedowns and losses lie ahead for their holdings of bonds and securities backed by home mortgages, as well as corporate loans. The worst housing slump in 16 years has led to record US foreclosures and brought trading in some mortgage bonds to a standstill as their value fell.